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Bitcoin Mules Flood China as OTC Cryptocurrency Trading Flourishes

After the Chinese government banned local bitcoin exchanges from operating in the country some industrious people have begun going abroad to buy the cryptocurrency and reselling it in China for a premium. There are now so many of these ‘bitcoin mules’ that their profit margins are rapidly declining.  

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Bitcoin Smuggling

Bitcoin Mules Flood China as OTC Cryptocurrency Trading FlourishesChinese bitcoin mules are buying bitcoin in various markets around the world and smuggling it back in to the country to fuel the flourishing and unregulated OTC (over-the-counter) market, according to a report from the region. However, the business isn’t as lucrative as it was a few months ago.

John DeCleene, an assistant fund manager at Overseas Chinese Investment Management, explained: “The market’s kind of taken a downturn; It is too many players entering this market, but also less of the hype we saw in December-January, when people were paying a 30 percent premium because they expected 10 times gains overnight.”

Hedge Funds Are Getting in on the Arbitrage Action

Bitcoin Mules Flood China as OTC Cryptocurrency Trading FlourishesIn lieu of local exchanges, Chinese investors are turning to over the counter trading, while using social media messengers, bank wires and online payment networks. “The big Chinese traders are all using Coincola or going direct to each other through other OTC platforms,” said Christian Grewell, a professor at NYU in Shanghai.

Reuters has interviewed a mule that admitted to illegally entering the United States with up to $40,000 to buy bitcoin which she then sells on the Chinese OTC markets. “Selling and buying bitcoins on those OTC websites is the same as shopping on Taobao,” she commented.

Besides an influx of mules, hedge funds are also taking a cut of the market driving down potential profits. “In the beginning, when there is 30 percent arbitrage, obviously you can travel to Thailand, buy bitcoins, send them to China, Japan, Korea and sell them. That’s easy,” said Peter Kim of KIT Trading. “But that opportunity is not going to last very long. And even though it is not as blatantly there, there are still many ways to profit from it, especially for someone like me who is used to making 3 basis points on a trade. The easy arbitrage is going to be much less prevalent now than it used to be,” Kim added.

What should governments learn from these developments regarding efforts to stop people from trading in bitcoin? Tell us what you think in the comments section below.


Images courtesy of Shutterstock.


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Tags in this story
Asian Markets, Bitcoin ban, Bulk Cash Smuggling, China, Chinese Exchanges, cross-border transfers, N-Featured, South Korea, thailand
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Avi Mizrahi

Avi Mizrahi is an economist and entrepreneur who has been covering Bitcoin as a journalist since 2013. He has spoken about the promise of cryptocurrency and blockchain technology at numerous financial conferences around the world, from London to Hong-Kong.